“There is more sanity now and the balance of power has shifted back to the investor,” said Vinod Murali, managing director of InnoVen Capital India.Biswarup Gooptu | ET Bureau | February 20, 2016, 08:13 IST

The Indian startup ecosystem saw record risk-capital inflows in 2015 — $16.8 billion (about Rs 1.1 lakh crore) — smashing the previous best of $14.5 billion in 2007.NEW DELHI: India’s startup landscape, which saw a deluge of venture capital and private equity funding in 2015, will once again see a significant number of startup ventures hitting the market for fresh capital, according to a report by venture debt firm InnoVen Capital.

“We are privileged to have a unique ringside view into the venture ecosystem as it has matured over the years,” said Ajay Hattangdi, chief executive for India for InnoVen Capital.

In a recent report titled ‘India Startup Outlook Report 2016’, the Temasek and United Overseas Bank-backed venture debt firm said it expects about 130 startups to raise about $700 million (about Rs 4,784 crore) over the course of 2016.

The report, which was prepared after interactions with heads of about 140 startups, says that 2016 could see up to 50 deals in the $1 million-3 million range, with the majority being struck by bootstrapped ventures, highlighting investors’ preference for companies that have exercised cost efficiencies and continue to focus on unit economics, rather than unparalleled growth.

“There is more sanity now and the balance of power has shifted back to the investor,” said Vinod Murali, managing director of InnoVen Capital India.

Correspondingly, the report also states that appetite for growth capital investments—characterised by investment rounds upwards of $25 million—in the country will remain limited, as venture capital investors continue to push their portfolio companies towards a path of profitability.

“Very few venture capital-backed companies are shooting for larger rounds at this point because of the ongoing tough market conditions. If you’re not profitable, there are very few investors with the thesis to write such large cheques,” Murali said.

“There was a lot of chaos in 2015, but the balance seems to have returned. The expectations of founders relating to valuations and cheque sizes have come down,” the MD of InnoVen Capital said.

Interestingly, the findings of the report also state that 84% of the bootstrapped companies polled, expect to be profitable by the end of the financial year ending 2017, while 81% of angel-backed startups expect to break even or be in the black over the same period.

“There is a clear focus on profitability in 2016, and startups need to make that cut,” Murali said.

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